News
BackJust two years after the Pittsburgh Declaration of the G20 States to fully regulate the financial markets and to get rid of the shadow banking system, the European Commission presented with some delay new proposals on the Markets in Financial Instruments Directive on 20 October 2011. Now the struggle for the substance of the MiFID will begin in the European Parliament and the Council. It remains to be seen what will be salvaged in respect of protecting investors. On Monday, the European Parliament held a public hearing to give stakeholders and experts the opportunity to discuss the strengths and weaknesses of the Markets in Financial Instruments Directive. The opinions for and against stricter regulation of the financial markets widely differed; however, no one is blind to the fact that the need for regulation exists. Subsequent to the hearing, it became apparent at least that the rapporteur of the European People’s Party on the new Markets in Financial Instruments Directive (MiFID/MiFIR 2), Markus Ferber (EVP), is in favour of an advance ban on unfair and harmful financial market products. Naturally, the representative of the Finnish finance industry, Mrs Piia-Noora Kauppi, took a completely different view. She claimed that preliminary examinations of financial products were strict enough in any case. Has the MiFID covered the right institutions, services/activities, trading venues and instruments?
Karel Lannoo, CEO of the Centre for European Policy Studies, took a fairly positive view of the current MiFID. He said it had resulted in more competition and had basically covered all financial services. However, not even he disputed that off-exchange trading (also called over-the-counter transactions) had to be regulated more. However, Thierry Philipponnat, Secretary General of Finance Watch, severely criticised the Markets in Financial Instruments Directive and said that highly-technical high-frequency trading promoted by it, had overall resulted in more market abuse and that investor protection had not been improved. However, he conceded that high-frequency trading would reveal both positive and negative aspects, such as the creation of liquidity on the one hand and the accrual of sheer trade volume and the occurrence of herd behaviour on the other. Nevertheless, both experts agreed that the new category of “organised trading platforms” (OTFs) was dispensable if the issue was to drive back off-exchange trading. In their view, the already existing multilateral trading venues were quite sufficient.
How effectively do the new proposals (MiFID/MiFIR 2) protect small investors in the light of market developments?
Verena Ross of the European Security and Markets Authority (ESMA) emphasised that the new proposals had to improve investor protection. However, the rights of ESMA and the national supervisory bodies to intervene in financial markets had been strengthened. It was also possible to suspend trading. She said that the MiFID was also concerned with providing consumers with better advice. Consumers had to know who would advise them, and in case of services provided by third parties conflicts of interest had to be avoided. Apart from that, it was important to drive forward the Best Execution Framework to ensure data transparency at various trading venues. The future coverage of structured products by the revised MiFID was a success from the point of view of investor protection. The access of trading participants from third countries will also be subject to common rules.
Jean-Pierre Jouyet, Head of the French financial market authority was very critical of the proposals on the Markets in Financial Instruments Directive. It had to be made much clearer that all market segments including highly complex financial products are to be regulated. After all, the original MiFID had led to less transparency and more speculation. He also emphasised that high-frequency trading had to be suspended if irrational herd behaviour made every common sense at financial markets appear to be a waste of time and effort. He also urged for the creation of a central register of trading participants to be administered by ESMA, which had to be public in the interest of investor protection.
Now, the political debate concerning the Markets in Financial Instruments Directive begins in the European Parliament and between the Member States and the European Parliament.
Links:
http://ec.europa.eu/internal_market/securities/isd/mifid_de.htm
How effectively do the new proposals (MiFID/MiFIR 2) protect small investors in the light of market developments?
Verena Ross of the European Security and Markets Authority (ESMA) emphasised that the new proposals had to improve investor protection. However, the rights of ESMA and the national supervisory bodies to intervene in financial markets had been strengthened. It was also possible to suspend trading. She said that the MiFID was also concerned with providing consumers with better advice. Consumers had to know who would advise them, and in case of services provided by third parties conflicts of interest had to be avoided. Apart from that, it was important to drive forward the Best Execution Framework to ensure data transparency at various trading venues. The future coverage of structured products by the revised MiFID was a success from the point of view of investor protection. The access of trading participants from third countries will also be subject to common rules.
Jean-Pierre Jouyet, Head of the French financial market authority was very critical of the proposals on the Markets in Financial Instruments Directive. It had to be made much clearer that all market segments including highly complex financial products are to be regulated. After all, the original MiFID had led to less transparency and more speculation. He also emphasised that high-frequency trading had to be suspended if irrational herd behaviour made every common sense at financial markets appear to be a waste of time and effort. He also urged for the creation of a central register of trading participants to be administered by ESMA, which had to be public in the interest of investor protection.
Now, the political debate concerning the Markets in Financial Instruments Directive begins in the European Parliament and between the Member States and the European Parliament.
Links:
http://ec.europa.eu/internal_market/securities/isd/mifid_de.htm